Magnite, Inc.

Good afternoon and welcome to the Magnite third quarter 2021 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Nick Corneluk, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Magnite's third quarter 2021 earnings conference call. As a reminder, the comparisons you will see in the 10Q, as reported, include the financial results of SpotX and SpringServe for Q3 2021, but for the third quarter of 2020, the results do not include SpotX or SpringServe, given the acquisition dates of April 30 and July 1, 2021, respectively. During the course of this call, when we refer to results and associated year-over-year comparisons with the phrase as reported, we are referring to the basis as reported in our 10Q. When we make comments referring to pro forma comparisons, we are including SpotX and SpringServe for the third quarter of 2020 in order to provide a like-to-like comparison. Please keep in mind as it relates to SpotX and SpringServe acquisitions, prior quarterly results are estimated and unaudited. As a reminder, this conference call is being recorded. Joining me on the call today are Michael Barrett, CEO, and David Day, our CFO. I would like to point out that we have posted financial highlight slides to our investor relations website to accompany today's presentation. Before we get started, I will remind you that our prepared remarks and answers to questions will include information that might be considered to be forward-looking statements, including but not limited to statements concerning our anticipated financial performance and strategic objectives, including the potential impact of COVID-19 on our business, as well as statements concerning the acquisitions of SpotX and SpringServe and potential benefits and synergies we expect to realize therefrom. These statements are not guarantees of future performance. They reflect our current views with respect to future events and are based on assumptions and estimates and subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from expectations or results projected or implied by forward-looking statements. A discussion of these and other risks, uncertainties, and assumptions is set forth in the company's periodic reports filed with the SEC, including our 2020 annual report on Form 10-K and our 10 Qs for Q1, 2, and 3 for 2021. We undertake no obligation to update forward-looking statements or relevant risks. Our commentary today will include non-GAAP financial measures, including revenue ex-tax or less traffic acquisition costs, adjusted EBITDA, and non-GAAP income per share. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release in the financial highlights deck that is posted on our investor relations website. At times, in response to your questions, we may offer incremental metrics to provide greater insights into the dynamics of our business. Please be advised that this additional detail may be one time in nature, and we may or may not provide an update in the future on these metrics. I encourage you to visit our investor relations website to access our press release, financial highlights deck, periodic SEC reports, and webcast replay of today's call to learn more about Magnite. I'll now turn the call over to Michael. Michael, please go ahead.

Thank you, Nick. It's been a busy three months for us since our last call, especially since we just hosted all of you on September 15th for Investor Day, which, if you missed, I would highly encourage you to review. formats and channels, which combined were up 89% as reported or 26% on a pro forma basis. Our results are strong, but we're tempered with some late Q3 supply chain related ad cancellations, which we have also experienced early in the fourth quarter. Despite this temporary headwind, as well as a tough political advertising comp from last year, we still exhibited very strong financial results again this quarter. I'll first cover some quick performance highlights. CTV revenue, XTAC, grew 51% on a pro forma basis. Our DV Plus business grew mid-teens revenue, XTAC, year over year on a pro forma basis. DV Plus is comprised of our mobile and desktop businesses, which grew 18% and 11% respectively. Adjusted EBITDA margins on a revenue XTAC basis came in above expectations at 35%, and we generated $34 million in operating free cash flow, which we define as adjusted EBITDA less capex. This quarter, CTV represented 38% of revenue XTAC and now represents the largest portion of our business. After closing the spring serve acquisition this quarter, we are in an even stronger position to capture and gain share in CTV with the addition of a strategic ad server. The work we have done has created an industry-leading CTV market position with the ability to serve a broad set of customer types with many different products and services to fuel future growth as the only independent end-to-end monetization platform. It bears repeating that we now have significantly widened and strengthened the customer segments we serve across device OEMs such as Roku and Samsung, virtual MVPDs such as Sling and Hulu, digital-first platforms such as Pluto and Tubi, and, of course, major broadcasters and programmers such as Discovery and Fox and creating deeper, more strategic, more durable partnerships. In addition, we have also meaningfully expanded our service offering to touch more inventory and transaction types. And our CTV revenue includes not only fees from managed auctions, but also fees from publisher direct sold deals, managed service revenue, ad serving fees, and value-added service fees. and we now participate in every part of the CTV buying process, direct, upfront, and programmatic, through our technology solutions and our managed service offering. It is clear that IDFA removal has affected some industry players. I want to be clear, we are not one of them, despite seeing well over 80% adoption of iOS 14.5 on our platforms. Our business doesn't participate in app downloads, and we have very little social advertising, thus limiting our exposure. Further underpinning this point, we have seen a shift from iOS to Android and spend, and better than expected CPMs from iOS opt-outs, approximately 20% lower than opt-ins. Keep in mind that iOS revenue as a percentage of our total revenue ex-tax is in the mid-single digits, and there is zero CTV revenue in iOS. As a reminder, on the third-party cookie front, Google continues to plan to eliminate third-party cookies in Chrome toward the end of 2023. We continue to believe that first-party publisher segments collected in a privacy-compliant manner will be the future of identity solutions and that SFPs will be a driving force behind this transition. This is an area where we are positioned extremely well. Now, I'd like to go into greater detail regarding the components of our ad spend to provide additional color. I'll start with the strongest performing sectors in Q3. Tech, health and fitness, home and garden, retail, and financial verticals continue to be the strongest performing year-over-year sectors. And this is on top of a very strong Q3 2020. Year-over-year growth rates in this group range from 16 to 45%, and compared to pre-COVID levels, the two-year stacked growth rates are all above 45%, up to a high of 88%. These sectors also jointly comprise a significant portion of industry ad spend. One additional vertical that showed strength in Key 3 is arts and entertainment, with the return of movies, live sports, and TV productions, which was up over 70% year over year. While we are focused on moving large linear TV budgets over to CTV from leading national advertisers, we're also seeing traction moving smaller advertisers over to CTV, in particular with respect to mid-market and regional campaigns. REI started with us in Q2, tripled in Q3, is on pace for another big sequential increase in Q4. CDW, who works with us through Group M, entered live sports CTV advertising this quarter, and we ran CTV campaigns for the Tennessee Titans, Advanced Auto Parts, and North Face. The weakest performing sectors in Q3 relative to last year were political, automotive, hobbies, and food and beverage. Travel is also still down double digits in a two-year stack, but up over 50% off the low base in Q3 of last year. At a high level, we expect these trends to, by and large, persist into Q4. We continue to see strength in retail, tech, and home and garden, and weakness in auto, driven by the chip shortages and travel due to ongoing COVID concerns. The team has been very busy this quarter and has a number of key wins worth mentioning. We announced in conjunction with the Trade Desk and AMC networks a new solution that allows TV programmers to deliver addressable ads programmatically on linear TV. Quigley Simpson, a full-service agency specializing in brand and performance marketing, made a spend commitment and selected Magnite to serve as the agency's preferred SSP, specifically for our strengths in CTV to address performance marketers' needs. Fubo selected us this quarter as its preferred SSP with a focus on live sports in CTV. Network 7 in Australia successfully used our platform during the Olympics, leveraging our advanced tools to more effectively manage large bursts of inventory during live sporting events. In addition to these client wins, I'm proud to announce Magnite 1 Too Big is Ad Exchange Awards last week at Programmatic IO in New York. First, our CTV platform swept the Best Video Technology for Media Suppliers Award, which recognizes innovative and powerful publishing-facing tech in the video space. Our entry included success metrics from our work with AMC Networks and the Trade Desk. Second, We won the Best Seller Focus Technology Award for our Demand Manager solution. This award recognizes vendors that excel in helping publishers build stronger and more sustainable businesses and illustrates how Demand Manager helped the weather company with their ad rendering speed, spend diversification, and scale. As you can see, it's been a very busy and productive quarter for Magnite. Thanks to the tireless efforts of the Magnite team, we continue to deliver our customers a valuable and highly differentiated solution. We are the only scaled independent omni-channel solution in market and are confident that we will continue to gain and grow share in CTV and DV Plus in the quarters to come. With that, I will hand things over to David, who will go into greater detail regarding financial performance and expectations.